Obamacare and the Lost Recovery

Corporate profitability is back up, and output has returned to nearly pre-recession levels.  But employment still has not recovered.  Why?

Well, I am sure there are a lot of reasons, but one potential reason I have pointed out for a while are Federal efforts to increase the cost of employment.  If the true cost of an employee is higher, or even more uncertain, then investments are going to be funneled preferentially into capital rather than labor.  Certainly that is what our company has been doing for a while.  Thus productivity is way up, and employment is low.

I believe that Obamacare is a very important element in raising the cost and uncertainty of hiring new employees, particularly for small and middle-sized businesses that so often drive much of American employment growth.  Certainly in the NFIB, the small business group to which my company belongs, the entire character of our internal discussions has changed.  Three years ago we might have been discussing a mix of 10 or 12 issues we had.  Now all you hear is Obamacare discussion.  [Note - some on the Left like Kevin Drum argue that this concern is irrational.  I seldom take seriously the opinion of people who have never tried to make a payroll about what business people should and should not be concerned about, but it almost does not matter.  Whether it is irrational or not, the concern is a fact.]

Let me share a chart I just saw on Kevin Drum's blog (which he used to make an entirely different point).  Let's look at the recession up to March 2010:

Look at the orange line which is private sector employment growth (the blue bars include government and get squirrelly in 2010 due to temporary census workers).  This looks like a normal (though deep) recession with a nice recovery beginning.

Then, on March 18, 2010, Obamacare passed.  Now lets play the numbers forward.  Again, pay attention to the private job growth in orange - the blue spike in April in May is all temporary census workers

Correlation is not equal to causation, but Obamacare looks to me to be exactly like the National Industrial Recovery Act under FDR, a huge source of regime uncertainty and stab at free markets that killed an incipient recovery.


  1. Engineer Bob:

    That chart is monthly change of employment. The first derivative of the change, not the actual change.

    I prefer to see the bottom lines -- actual jobs, as a percent of total jobs. See an example of this at http://www.businessinsider.com/chart-of-the-day-percent-job-losses-in-post-wwii-recessions-2011-3.

    This shows that the employment situation remains extremely difficult. As we all know.

  2. Byron:

    Gee, I guess the outsourcing of all our jobs isn't the problem, huh?

    Or the tens of millions of illegal immigrants working for pennies? Or the financialization of the economy, whereby large national banks are subsidized to speculate in commodities driving up the cost of gas and just about everything else?

    Or the millions of foreigners on legal visas for the sole reason of undercutting US citizens? Or the fact most US corporations manipulating our Politicians are actually foreign corporations looking to improve their GLOBAL bottom line.

    You've drank the coolaid. You assume the market is rationally pricing in Obamacare (which does suck). Its not. It's pricing in the Apocalypse.

  3. John Moore:

    I suspect that the passage of Obamacare signaled to businesses that the government was likely to take all sorts of huge, irrational and unpredictable economic interventions, so that Obamacare itself was just part of the problem.

    Byron does have a bit of a point, but it is not related to the timing at all. Yes, jobs are being outsourced out of the country. In my field (IT) I see it a lot, even when it doesn't work very well. Engineering is leaving the US and moving to India and China, or being done by those foreigners here (there are a number of contract Indians on H-5 visas at my company, along with several major outsourcing initiatives including all of our operations and sysadmin). Do not for a moment imagine that it's because India or China provide superior results - they don't - but the effect is the same: US unemployment.

    Likewise, the illegals are taking a lot of the jobs that once were the province of American teenagers and first rungs in their achievement ladder, although whether American teenagers would do those jobs is an open question.

  4. Ted Rado:

    The USG is getting into everything. The result is invariably a royal f-up. The Brits (Atlee government) had to go through this to demonstrate that government run business and industry is a disaster. Maybe we have to do the same. Some people don't believe the "wet paint" signs and have to touch. Perhaps we need a horrible experience to finally get the point that we need minimum government and maximum free enterprise.

  5. Keith Weiner:

    I agree with your point Coyote. But I'd add another. It takes savings to invest. What savings is possible with zero interest rate policy?

  6. Ted Rado:

    Keith Weiner:

    Amen, brother. I am a retiree, and for all practical purposes, my investment income is zero. Bond and CD rates (unless you want to gamble on long term bonds) are negligible, and the stock market swings wildly, averaging zero over the last several years. Thank God I can live OK on my pension and social security without usind my principal. The government mismanagement (aka confiscation of my savings) is criminal. All to get reelected. The SOB's should go to jail, not to Congress and the White House.

  7. Nate Ogden:

    in adition to obama care unemployement benefits are keeping way to many people unemployed. As a small business owner I have had way to many people turn down my job offers becuase they can make as much as I am willing to pay with unemployement. I shouldn't have to outbid myself to hire people.

  8. Noumenon:

    Certainly in the NFIB, the small business group to which my company belongs, the entire character of our internal discussions has changed. Three years ago we might have been discussing a mix of 10 or 12 issues we had. Now all you hear is Obamacare discussion.

    I'd love to hear some more "insider's perspective" on this. By giving a couple examples of this kind of discussion that the public doesn't have access to, you can add a unique perspective on what businessmen are thinking. And I'd like to judge for myself; does this Obamacare discussion sound like "OMG socialists!!!", like "Here's an astroturf article imagining up a list of scary-sounding consequences to convince people this is a major issue," or is it just like "How do I determine my number of affected employees?"

    I'm really unclear on whether CEOs are into political groupthink or not. I also like to see stuff like my boss's discarded Corporate Report: Wisconsin magazine, where you see management-only advice like "make sure to walk OSHA inspectors around the building through the parking lot into the back door for the shortest route to the affected machine they're inspecting, because otherwise they have the right to add any machine they see to their problem list and interview any employee they pass by in the plant."

  9. dad29:

    There's another factor besides cost-of-employees and that's demand, which is not too strong. Autos are running at ~13 million annual, about 18% under the pace of 5 years ago and consumer durables are just plain weak. Housing?....yah, well. Ditto commercial buildings. Mining machinery is very good and strong as is ag machinery. Computers and peripherals were very soft until recently and are not setting any fires now, either.

    Automation has another advantage; you can dial it up and down; there are no unemployment costs, no health costs aside from maintenance, and every 5 years you can get newer AND better machines.

    But just as bad as ObamaCare is the regulatory assault on petroleum and electrical energy. Businesses pay those costs, too, and it's clear that Obama & Co. want to make them pay dearly. Not a climate in which one wants to add people, because even if there's a marginally-good reason to hire, the cost-increases in energy may AGAIN stomp demand.

    THEN what do you do with all those new people?

  10. caseyboy:

    Common denominator? Government intervention in markets and its attempt to control outcomes. That great sucking sound coming from Washington DC is our future going down the drain.

    Thomas Jefferson once said, "The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

    Do we have what it takes to change things through the ballot box or must things get so desperate that we'll need to exercise our 2nd Amendment through the cartridge box?

  11. criolle johnny:

    Is it just me, or do those graphs look like blue panties?

  12. Noumenon:

    You never approved my comment in this thread.